Lincoln Financial Group Reports First Quarter 2017 Results

Book value per share (BVPS), including AOCI, of $66.58, up 9%; BVPS,
excluding AOCI, of $58.37, up 10%

Net income ROE, including AOCI, of 11.8%; Operating ROE, excluding
AOCI, of 13.6%

Total capital return to shareholders of $266 million, including $200
million in share repurchases

May 03, 2017 04:15 PM Eastern Daylight Time

RADNOR, Pa.--(BUSINESS WIRE)--Lincoln Financial Group (NYSE: LNC) today reported net income for the
first quarter of 2017 of $435 million, or $1.89 per diluted share
available to common stockholders, compared to net income in the first
quarter of 2016 of $211 million, or $0.83 per diluted share available to
common stockholders. First quarter income from operations was $442
million, or $1.92 per diluted share available to common stockholders,
compared to $317 million, or $1.26 per diluted share available to common
stockholders, in the first quarter of 2016.

“The first quarter represented a very strong start to the year as we
reported record operating earnings and EPS, a 10% increase in book value
per share, and nearly a 14% ROE,” said Dennis R. Glass, president and
CEO of Lincoln Financial Group. “Looking forward, we are encouraged by
sales momentum in many of our businesses, continued expense discipline,
and robust capital generation and deployment.”

As of or For the

Quarter Ended

(in millions, except per share data)

2017

2016

Net Income (Loss)

$

435

$

211

Net Income (Loss) Available to Common Stockholders

435

204

Net Income (Loss) per Diluted Share Available to Common Stockholders

1.89

0.83

Revenues

3,500

3,243

Income (Loss) from Operations

442

317

Income (Loss) from Operations per Diluted Share Available to Common
Stockholders

1.92

1.26

Average Diluted Shares

230.1

245.1

ROE, including AOCI (Net Income)

11.8%

6.0%

ROE, excluding AOCI (Income from Operations)

13.6%

9.9%

Book Value per Share, Including AOCI

$

66.58

$

61.33

Book Value per Share, Excluding AOCI

58.37

53.25

Operating Highlights – First Quarter 2017 versus First Quarter 2016

Income from operations per share, excluding notable items, up 37%

Each operating segment reported growth in income from operations

Operating revenues of $3.6 billion, up 5%

Individual life insurance sales of $158 million, up 20%

Group Protection premiums of $495 million, up 1%; marks first growth
in premiums since 2014

Retirement Plan Services net flows of $116 million, up 49%

The current quarter included $0.19 of favorable items related to
one-time tax adjustments. In the prior-year quarter, there were no
notable items.

First Quarter 2017 – Segment Results

Annuities

The Annuities segment reported income from operations of $281 million in
the quarter, up 29% versus the prior-year quarter. Excluding the benefit
of one-time tax adjustments in the current quarter, the increase in
earnings is primarily from higher fee income as average account values
grew 8% to $128 billion.

Gross annuity deposits in the first quarter of $2.0 billion decreased
14% from the prior-year quarter; however, deposits increased 11%
sequentially. The year-over-year decline in variable annuity deposits
moderated to 14% and increased 4% sequentially. Fixed annuity deposits
of $562 million declined 16% year over year, but increased 37%
sequentially.

The current quarter included favorable items of $41 million related to
one-time tax adjustments, primarily related to dividend received
deductions. The prior-year quarter did not include any notable items.

Retirement Plan Services

Retirement Plan Services reported income from operations of $37 million
compared to $31 million in the prior-year quarter. The increase in
earnings is attributable to growth in fee income from higher average
account values and expense efficiency.

Total deposits for the quarter of $2.3 billion were up 26% versus the
prior-year period driven by strong first-year sales in both the small
and mid-large markets and continued growth in recurring deposits.

Net flows totaled $116 million in the quarter, a 49% increase compared
to the prior-year quarter. When combined with favorable market
performance, average account values increased 12% to $60 billion.

The current quarter included a favorable item of $2 million related to a
one-time tax adjustment. The prior-year quarter did not include any
notable items.

Life Insurance

Life Insurance reported income from operations of $130 million versus
$75 million in the prior-year quarter. The increase in earnings is
attributable to a recovery in variable investment income and favorable
mortality relative to the prior-year period and typical seasonality.

Individual life insurance sales in the quarter were $158 million, a 20%
increase from the prior-year quarter driven by solid double-digit sales
growth in MoneyGuard® and VUL. Executive Benefit sales, which can
fluctuate quarter to quarter, contributed an additional $23 million to
total Life Insurance sales, compared to $7 million in the prior-year
quarter.

Total Life Insurance in-force of $699 billion and average account values
of $46 billion both increased 5% over the prior-year quarter.

The current quarter included a favorable item of $1 million related to a
one-time tax adjustment. The prior-year quarter did not include any
notable items.

Group Protection

Group Protection income from operations was $7 million in the quarter
compared to $5 million in the prior-year period. The increase in
earnings was driven by a decline in amortization expenses, partially
offset by a slightly higher non-medical loss ratio. The total
non-medical loss ratio was 71% in the current quarter compared to 70% in
the prior-year period.

Group Protection sales of $57 million declined 3% from the same period
last year as a decrease in life sales more than offset growth in
disability and dental. Employee-paid product sales represented 53% of
total sales, largely unchanged from the prior-year quarter.

Non-medical net earned premiums were $495 million in the first quarter,
up 1% from the prior-year quarter.

Other Operations

Other Operations reported a loss from operations of $13 million versus a
loss of $12 million in the prior-year quarter. The current quarter
included a $6 million after-tax expense related to our strategic
digitization initiative and a $9 million tax benefit related to
accounting for stock-based compensation.

Realized Gains and Losses / Impacts to Net Income

Realized gains/losses (after-tax) in the quarter included:

A net loss from general account investments of $1 million compared to
a $64 million net loss in the prior-year quarter.

There was no impact to net income from variable annuity net derivative
results compared to a net loss of $27 million in the prior-year
quarter.

Unrealized Gains and Losses

The company reported a net unrealized gain of $5.3 billion, pre-tax, on
its available-for-sale securities at March 31, 2017. This compares to a
net unrealized gain of $5.5 billion at March 31, 2016.

Capital

During the quarter, the company repurchased 2.9 million shares of stock
at a cost of $200 million. The quarter’s average diluted share count of
230.1 million was down 6% from the first quarter of 2016, the result of
repurchasing 16.6 million shares of stock at a cost of $879 million
since March 31, 2016.

Book Value

As of March 31, 2017, book value per share, including accumulated other
comprehensive income (“AOCI”), of $66.58 increased 9% from a year ago.
Book value per share, excluding AOCI, of $58.37 increased 10% from the
prior-year period.

The tables attached to this release define and reconcile our non-GAAP
measures income from operations, operating return on equity (“ROE”) and
book value per share, excluding AOCI to net income, ROE and book value
per share, including AOCI calculated in accordance with GAAP.

This press release may contain statements that are forward-looking, and
actual results may differ materially, especially given the current
economic and capital market conditions. Please see the Forward Looking
Statements – Cautionary Language that follow for additional factors that
may cause actual results to differ materially from our current
expectations.

For other financial information, please refer to the company’s first
quarter 2017 statistical supplement available on its website, www.LincolnFinancial.com/earnings.

Lincoln Financial Group will discuss the company’s first quarter results
with investors in a conference call beginning at 10:00 a.m. Eastern Time
on Thursday, May 4, 2017. Interested persons are invited to listen
through the internet. Please go to www.LincolnFinancial.com/webcast
at least fifteen minutes prior to the event to register, download and
install any necessary streaming media software. Interested persons may
also listen to the call by dialing the following numbers:

Dial:

(866) 394-4575 (Domestic)

(678) 509-7536 (International)

Ask for the Lincoln National Conference Call.

Audio replay will begin by 1:00 p.m. Eastern Time on May 4, 2017, and it
will remain available through 1:00 p.m. Eastern Time on May 11, 2017. To
access the re-broadcast:

Lincoln Financial Group provides advice and solutions that help empower
people to take charge of their financial lives with confidence and
optimism. Today, more than 17 million customers trust our retirement,
insurance and wealth protection expertise to help address their
lifestyle, savings and income goals, as well as to guard against
long-term care expenses. Headquartered in Radnor, Pennsylvania, Lincoln
Financial Group is the marketing name for Lincoln National Corporation
(NYSE:LNC) and its affiliates. The company had $236 billion in assets
under management as of March 31, 2017. Learn more at: www.lfg.com.
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Explanatory Notes on Use of Non-GAAP Measures

Management believes that income from operations, operating return on
equity and operating revenues better explain the results of the
company’s ongoing businesses in a manner that allows for a better
understanding of the underlying trends in the company’s current business
because the excluded items are unpredictable and not necessarily
indicative of current operating fundamentals or future performance of
the business segments, and, in most instances, decisions regarding these
items do not necessarily relate to the operations of the individual
segments. Management also believes that using book value excluding
accumulated other comprehensive income (AOCI) enables investors to
analyze the amount of our net worth that is primarily attributable to
our business operations. Book value per share excluding AOCI is useful
to investors because it eliminates the effect of items that can
fluctuate significantly from period to period, primarily based on
changes in interest rates.

For the historical periods, reconciliations of non-GAAP measures used in
this press release to the most directly comparable GAAP measure may be
included in this Appendix to the press release and/or are included in
the Statistical Reports for the corresponding periods contained in the
Earnings section of the Investor Relations page on our website: www.LincolnFinancial.com/investor.

Definitions of Non-GAAP Measures Used in this
Press Release

Income (loss) from operations, operating revenues and operating return
on equity (including and excluding average goodwill within average
equity), excluding AOCI, using annualized income (loss) from operations
are financial measures we use to evaluate and assess our results. Income
(loss) from operations, operating revenues and operating return on
equity (“ROE”), as used in the earnings release, are non-GAAP financial
measures and do not replace GAAP revenues, net income (loss) and ROE,
the most directly comparable GAAP measures.

Income (Loss) from Operations

We exclude the after-tax effects of the following items from GAAP net
income (loss) to arrive at income (loss) from operations:

Realized gains and losses associated with the following ("excluded
realized gain (loss)"):

Change in the fair value of the derivatives we own to hedge our
guaranteed death benefit ("GDB") riders within our variable
annuities, which is referred to as "GDB derivatives results";

Change in the fair value of the embedded derivatives of our
guaranteed living benefit (“GLB”) riders within our variable
annuities accounted for under the Derivatives and Hedging and the
Fair Value Measurements and Disclosures Topics of the Financial
Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) (“embedded derivative reserves”), net of the
change in the fair value of the derivatives we own to hedge the
changes in the embedded derivative reserves, the net of which is
referred to as “GLB net derivative results”;

Changes in the fair value of the embedded derivative liabilities
related to index call options we may purchase in the future to
hedge contract holder index allocations applicable to future reset
periods for our indexed annuity products accounted for under the
Derivatives and Hedging and the Fair Value Measurements and
Disclosures Topics of the FASB ASC (“indexed annuity
forward-starting option”);

Amortization of deferred gains arising from the reserve charges on
business sold through reinsurance;

Revenue adjustments from the initial adoption of new accounting
standards.

Operating Return on Equity

Return on equity measures how efficiently we generate profits from the
resources provided by our net assets.

It is calculated by dividing annualized income (loss) from operations
by average equity, excluding accumulated other comprehensive income
(loss) ("AOCI").

Management evaluates return on equity by both including and excluding
average goodwill within average equity.

Definition of Notable Items

Income (loss) from operations, excluding notable items is a non-GAAP
measure that excludes items which, in management’s view, do not reflect
the company’s normal, ongoing operations.

We believe highlighting notable items included in income (loss) from
operations enables investors to better understand the fundamental
trends in its results of operations and financial condition.

Book Value Per Share Excluding AOCI

Book value per share excluding AOCI is calculated based upon a non-GAAP
financial measure.

It is calculated by dividing (a) stockholders' equity excluding AOCI
by (b) common shares outstanding.

We provide book value per share excluding AOCI to enable investors to
analyze the amount of our net worth that is primarily attributable to
our business operations.

Management believes book value per share excluding AOCI is useful to
investors because it eliminates the effect of items that can fluctuate
significantly from period to period, primarily based on changes in
interest rates.

The numerator used in the calculation of our diluted EPS is adjusted
to remove the mark-to-market adjustment for deferred units of LNC
stock in our deferred compensation plans if the effect of equity
classification would result in a more dilutive EPS.

(2)

We use our prevailing federal income tax rate of 35% while taking
into account any permanent differences for events recognized
differently in our financial statements and federal income tax
returns when reconciling our non-GAAP measures to the most
comparable GAAP measure.

The numerator used in the calculation of our diluted EPS is adjusted
to remove the mark-to-market adjustment for deferred units of LNC
stock in our deferred compensation plans if the effect of equity
classification would be more dilutive to our diluted EPS.

Forward Looking Statements — Cautionary Language

Certain statements made in this press release and in other written or
oral statements made by Lincoln or on Lincoln's behalf are
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (“PSLRA”). A forward-looking
statement is a statement that is not a historical fact and, without
limitation, includes any statement that may predict, forecast, indicate
or imply future results, performance or achievements, and may contain
words like: "believe," "anticipate," "expect," "estimate," "project,"
"will," "shall" and other words or phrases with similar meaning in
connection with a discussion of future operating or financial
performance. In particular, these include statements relating to future
actions, trends in Lincoln's businesses, prospective services or
products, future performance or financial results, and the outcome of
contingencies, such as legal proceedings. Lincoln claims the protection
afforded by the safe harbor for forward-looking statements provided by
the PSLRA.

Forward-looking statements involve risks and uncertainties that may
cause actual results to differ materially from the results contained in
the forward-looking statements. Risks and uncertainties that may cause
actual results to vary materially, some of which are described within
the forward-looking statements include, among others:

Deterioration in general economic and business conditions that may
affect account values, investment results, guaranteed benefit
liabilities, premium levels, claims experience and the level of
pension benefit costs, funding and investment results;

Adverse global capital and credit market conditions could affect our
ability to raise capital, if necessary, and may cause us to realize
impairments on investments and certain intangible assets, including
goodwill and the valuation allowance against deferred tax assets,
which may reduce future earnings and/or affect our financial condition
and ability to raise additional capital or refinance existing debt as
it matures;

Because of our holding company structure, the inability of our
subsidiaries to pay dividends to the holding company in sufficient
amounts could harm the holding company’s ability to meet its
obligations;

Legislative, regulatory or tax changes, both domestic and foreign,
that affect: the cost of, or demand for, our subsidiaries' products;
the required amount of reserves and/or surplus; our ability to conduct
business and our captive reinsurance arrangements as well as
restrictions on revenue sharing and 12b-1 payments; and the potential
for U.S. federal tax reform and the effect of the Department of
Labor’s regulation defining fiduciary;

Uncertainty about the effect of continuing promulgation and
implementation of rules and regulations under the Dodd-Frank Wall
Street Reform and Consumer Protection Act on us and the economy, and
financial services sector in particular;

The initiation of legal or regulatory proceedings against us, and the
outcome of any legal or regulatory proceedings, such as: adverse
actions related to present or past business practices common in
businesses in which we compete; adverse decisions in significant
actions including, but not limited to, actions brought by federal and
state authorities and class action cases; new decisions that result in
changes in law; and unexpected trial court rulings;

A decline in the equity markets causing a reduction in the sales of
our subsidiaries' products; a reduction of asset-based fees that our
subsidiaries charge on various investment and insurance products; an
acceleration of the net amortization of deferred acquisition costs, or
"DAC;" value of business acquired, or "VOBA;" deferred sales
inducements, or "DSI;" and deferred front end sales loads, or "DFEL;"
and an increase in liabilities related to guaranteed benefit features
of our subsidiaries' variable annuity products;

Ineffectiveness of our risk management policies and procedures,
including various hedging strategies used to offset the effect of
changes in the value of liabilities due to changes in the level and
volatility of the equity markets and interest rates;

A deviation in actual experience regarding future persistency,
mortality, morbidity, interest rates or equity market returns from the
assumptions used in pricing our subsidiaries' products, in
establishing related insurance reserves and in the net amortization of
DAC, VOBA, DSI and DFEL, which may reduce future earnings;

Changes in accounting principles generally accepted in the United
States, or "GAAP," including convergence with International Financial
Reporting Standards (“IFRS”), that may result in unanticipated changes
to our net income;

Lowering of one or more of our debt ratings issued by nationally
recognized statistical rating organizations and the adverse effect
such action may have on our ability to raise capital and on our
liquidity and financial condition;

Lowering of one or more of the insurer financial strength ratings of
our insurance subsidiaries and the adverse effect such action may have
on the premium writings, policy retention, profitability of our
insurance subsidiaries and liquidity;

Significant credit, accounting, fraud, corporate governance or other
issues that may adversely affect the value of certain investments in
our portfolios as well as counterparties to which we are exposed to
credit risk requiring that we realize losses on investments;

Inability to protect our intellectual property rights or claims of
infringement of the intellectual property rights of others;

Interruption in telecommunication, information technology or other
operational systems, or failure to safeguard the confidentiality or
privacy of sensitive data on such systems from cyberattacks or other
breaches of our data security systems;

The effect of acquisitions and divestitures, restructurings, product
withdrawals and other unusual items;

The adequacy and collectability of reinsurance that we have purchased;

Acts of terrorism, a pandemic, war or other man-made and natural
catastrophes that may adversely affect our businesses and the cost and
availability of reinsurance;

Competitive conditions, including pricing pressures, new product
offerings and the emergence of new competitors, that may affect the
level of premiums and fees that our subsidiaries can charge for their
products;

The unknown effect on our subsidiaries' businesses resulting from
changes in the demographics of their client base, as aging
baby-boomers move from the asset-accumulation stage to the
asset-distribution stage of life; and

The unanticipated loss of key management, financial planners or
wholesalers.

The risks included here are not exhaustive. Our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
other documents filed with the SEC include additional factors which
could impact our business and financial performance. Moreover, we
operate in a rapidly changing and competitive environment. New risk
factors emerge from time to time, and it is not possible for management
to predict all such risk factors.

Further, it is not possible to assess the impact of all risk factors on
our businesses or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results. In
addition, Lincoln disclaims any obligation to update any forward-looking
statements to reflect events or circumstances that occur after the date
of this presentation.

The reporting of RBC measures is not intended for the purpose of ranking
any insurance company or for use in connection with any marketing,
advertising or promotional activities.